FocusEurope aromatics fall 25% on market fears

13 October 2008 16:07[Source: ICIS news]

By Peter Salisbury

LONDON (ICIS news)--Benzene and styrene market participants were still reeling from a 25% intra-month drop in spot values on Monday, attributing the slump in part to short-selling and liquidation of inventories.

Trading in the two markets was down as much as $125-240/tonne (€93-175/tonne) and $130-280/tonne at the end of last week

This was around 15% lower on average from the previous week and 25% down from the highs of $1,220/tonne CIF (cost, insurance and freight) ARA (Amsterdam, Rotterdam, Antwerp) for benzene and $1,620/tonne FOB (free on board) Rotterdam for styrene seen on 23 September, according to global chemical market intelligence service ICIS pricing.

Market participants had agreed that faltering downstream demand and crude oil prices had been central to the drop, and on Monday a number of players said that short selling and liquidation of stocks could also have played a key role.

Producers, consumers and traders with high inventories of expensive material had seen a falling market and decided that forward demand was unlikely to improve, prompting the decision to sell off stocks so that they could show cash in their books rather than rapidly devalued stocks, said one source.

Some traders were also taking “short” positions by selling into the falling market and later buying material back, profiting on the difference, players said.

“There’s a bunch of stuff going on,” said a trader source on Monday.

“There are a lot of people selling short. Asian traders have been trying to hedge on the two [Asian and European] markets and to liquidate their stocks.”

A broker added: “[They sold] to run off length,” meaning that players had sold to erase excess volumes.

Another trader agreed: “Undoubtedly, there are companies which would rather have cash over product.

“We’re coming to the end of the year, and nobody wants to have inventories.” The trader went on to say that he would continue to take a short position.

A number of trades had been seen in both markets, with players estimating that tens of thousands of tonnes of material had been sold during the week.

The flurry of trades, with sellers more prevalent than buyers had added to downwards pressure on spot values.

In late September and early October, the markets had been extremely illiquid with single trades conducted publicly over seven-day periods.

“Here's my story: this sell-off is mostly credit and liquidity related, not reflecting market balance,” said a source at another trading house and distributor.

“[Players will] turn assets to cash, the sell-off will subside and people will take the low numbers for re-entering. Also, OPEC will take its measures [to cut oil production].

"Therefore, my forecast is this and next week down. In two weeks we should see the bottom, maybe a turning point,” he added.

With fears of a widespread recession endemic, it was likely that the market would continue to fall, as end-users held back from buying and energy prices fell, said several traders.

However, this would allow for greater market liquidity, as players could trade on the basis of clear market direction, they said.